Washington, D.C. - the American institute of CPAs has filed a lawsuit against the federal trade commission challenging the applicability of the so-called "Red Flags Rule" to CPAs. The lawsuit follows on the heels of the FTC's recent decision to delay enforcement of the rule for the fourth time. The rule requires financial institutions and creditors to develop and implement written identity theft programs to help identify, detect and respond to patterns, practices or specific activities - known as "Red Flags" - that could indicate identity theft. It was originally set to take effect on Nov. 1, 2008, but after the latest extension, it is now set to become effective June 1, 2010.

The AICPA filed suit in the U.S. District Court for the District of Columbia seeking an injunction barring the FTC from applying the Red Flags Rule to CPAs, claiming the rule would impose onerous and unnecessary requirements on AICPA members. Its application to lawyers and law firms has already been blocked after a similar lawsuit was filed by the American Bar Association.

"We do not believe that there is any reasonably foreseeable risk of identity theft when CPA clients are billed for services rendered," said AICPA president and CEO Barry Melancon in a statement. "As trusted advisors, CPAs are personally acquainted with their clients and already adhere to strict privacy requirements governing identifying information."

The Red Flags Rule was mainly intended to apply to financial institutions and credit card companies. Under the FTC's interpretation, the rule would apply to public accountants only because CPA firms typically bill clients for services rendered, thus technically qualifying them as a "creditor." However, the AICPA contends that public accountants do not provide financial services that would typically create identity theft risks for clients.

The AICPA's complaint, filed by the law firm Fried, Frank, Harris, Shriver & Jacobson LLP, alleges that the FTC is exceeding its congressionally granted powers under the 2003 law by interpreting its Red Flags Rule to apply to accountants.

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